Flipping Real Estate: 10 Terms to Know

Real estate is a complex market, and house flipping can be even more complex. As you start to try to get into real estate and house flipping you will encounter many terms you are not familiar with. It is important to be familiar with the language used in the house flipping business, so here is a look at the definitions of ten important terms.

1. Foreclosure Auction: Properties that have been foreclosed are often sold via auction. These properties end up selling for a drastically lower price than they would be normally. House flippers find the lower prices desirable because it gives them more financial room for profit.
2. Motivated Seller: A motivated seller in real estate is a property owner who is in a dangerous financial situation with their property. This situation motivates them to sell their property at an extremely discounted price.
3. Wholesale: Wholesale is a function in real estate in which you either sell or purchase a property from a motivated seller. While being a legitimate investment strategy in itself, wholesale is also a good backup plan if a property flip begins to lose you money.
4. Building Restrictions: These are the requirements in building codes that affect the size and appearance of a building. You will need to be aware of these as you perform renovations on a property.
5. Closing Costs: Closing costs are the fees that go into selling a property. These can include building inspections and attorney fees. House flippers need to factor in closing costs to their budget when working on a property.
6. Title: This is the deed to the property. Before beginning any work on a house flip you will want to ensure that you have the title for the property. If you do not then you do not legally own the property and should not be performing any renovations.
7. ARV: Standing for “After Repair Value,” this value is simply how much your property is worth after your renovations are complete. This value will tell you how much money you could potentially make from the sale of the property once the flip is complete.
8. Functional Obsolescence: This phrase describes a property that has flaws or other imperfections. Additionally, it means that the property has been made inferior because of advances made in modern housing. Those looking to flip houses may be able to purchase properties like this for very low prices.
9. Hard Money Lender: A private institution who will offer loans specifically for flipping houses is referred to as a hard money lender. However, these lenders often charge very high interest rates, even as high as 10 or 12%.
10. Parcel: A parcel refers to a specific portion of land. When flipping houses, you may encounter this if a home is sold with any of the surrounding land. If the property comes with a parcel of land you will have to pay a higher price to purchase the property.